Fiddling while his bank burned: His disastrous reign at HBOS cost taxpayers £20bn but the REAL scandal is how this arrogant Blair crony has escaped blame for so long

Fiddling: Lord Stevenson playing his violin, but it wasn't sweet music to the ears of the banking community when HBOS crumbled

Addressing a hall full of the nation’s brightest entrepreneurs earlier this year, Dennis Stevenson had some unusual career advice to offer.

‘Go and get a job cleaning lavatories,’ the 67-year-old life peer and City big-wig said. ‘Lavatory cleaning is done very badly. Find a way of improving the process and set up a business doing it.’

Britain’s taxpayers might be forgiven for thinking they might have been much better off if Lord Stevenson had followed his own advice. Because if he had, the huge amount of damage that his own bank inflicted on the public purse at the height of the financial crash might have been severely limited.

Stevenson was chairman of HBOS, the
country’s biggest mortgage lender, for seven years. The job earned him
£815,000 a year in pay and perks.

Then,
in September 2008, the bank all but collapsed under the sheer scale of
bad debt it had racked up, much of it during his time in charge.

It
was rescued thanks to a takeover by Lloyds — until then Britain’s
safest bank — only for Lloyds itself then to be crippled by the toxic
loans on HBOS’s books, triggering a £20 billion bailout from taxpayers
several weeks later.

As
a result, taxpayers are today sitting on a £7.5 billion paper loss on
the Lloyds shares bought by the Government. Meanwhile, millions of
investors and pension savers have seen their nest eggs destroyed. So how
heavily does all this weigh on the conscience of Stevenson, the man one
might reasonably argue is ultimately responsible for what happened at
HBOS?

This week he was summoned to give evidence to the Parliamentary Commission on Banking Standards.

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And
during more than three hours of questioning, he resolutely tried to
wash his hands of blame for the bank’s collapse. What happened was not
his fault, he insisted, because he was only there ‘part-time’.

This grotesque attempt to pass the buck infuriated his audience of MPs and peers, who included former Tory Chancellor Lord (Nigel) Lawson and the next Archbishop of Canterbury. They accused Stevenson of being delusional, ‘living in cloud cuckoo land’ and branded his testimony ‘evasive, unrealistic and repetitive’.

Disaster: Sir Fred Goodwin didn't get off as lightly as Lord Stevenson over the banking crisis

Much irritation came after the commission was shown two letters written by Stevenson to the Financial Services Authority in 2008 which asserted that he was ‘not aware of any lurking horrors on our business or balance sheet’. Lord Lawson retorted: ‘Either you were being dishonest when you wrote that or, if you believed it, you were delusional.’

By the end, the former bank chairman was so clearly taken aback that he had almost lost his voice. But the ineluctable fact is that this public dressing down of one of the key figures involved in the financial crisis was long overdue.

Because while Fred ‘The Shred’ Goodwin — the former boss of The Royal Bank of Scotland — was stripped of his knighthood for his role in the bank’s collapse, Stevenson has remained at the heart of the Establishment, working as a cross-bencher in the House of Lords.

Until earlier this year Stevenson — who was once a member of the National Youth Orchestra and still plays the violin — was still chairman of the influential Arts and Media Honours Committee that hands out honours on behalf of the Queen.

Nor, despite being forced to resign from HBOS after the bank’s meltdown, has he suffered unduly financially. As a non-executive director of the global money transfer service Western Union, he earned more than £500,000 between 2008 and 2011.

Then there was the £35,000 he picked up last year for sitting on the board of The Economist magazine before retiring from that role. He has also continued to be involved in the high-octane, high-risk world of investment for the super-rich. His work has included supporting a private equity firm that invested in war-ravaged Sierra Leone and he recently quit as a non-executive directorship of Loudwater Investment Partners, a venture capital firm based in tax haven Guernsey.

Another of his consultancy firms is called Cloaca Maxima (named after the Latin phrase for ‘great sewer’).

The disturbing fact that the Stevenson wagon rolled on despite the HBOS scandal may surprise outsiders — but not those familiar with how this arch-schmoozer operates. A friend of Peter Mandelson and Tony Blair, he understands intimately how the levers of power work, carefully cultivating a network of left-leaning friends in politics, business and the arts, who regard themselves as ‘the people who know best’ — even when their mistakes are measured in billions and are cleared up at a huge cost to taxpayers.

He said he ‘would be very cross if anyone came away from meeting me and thought I was dim’

Henry Dennistoun Stevenson was born into this gilded world of privilege. The son of a farming father who had been sheriff of Edinburgh, he was educated at Glenalmond, the Scottish public school, and won a scholarship to King’s College, Cambridge, to read economics and sociology.

In his finals he got a 2:2 rather than the brilliant first he’d predicted for himself. ‘It was the biggest disaster that has ever happened to me,’ he later recalled. ‘I cried for almost a week.’

With his dreams of academia dashed, Stevenson decided to enter the world of business, setting up the Specialist Research Unit, a market research based management consultancy agency.

It did extremely well, quickly establishing a reputation for its unconventional, low-key approach. Clients included record company EMI and Unilever. But Stevenson, a man known City-wide for his high opinion of his own worth, believed his talents should be shared by the public sector.

After all, this is a man who once described himself as ‘an unreconstructed 1960s Guardian-reading liberal’ and an ‘intellectual snob’.

He also said he ‘would be very cross if anyone came away from meeting me and thought I was dim’.Despite his liberal left leanings, at the age of 26 he got his chance to shine when he was talent-spotted by the Tories to become chairman of Newton Aycliffe and Peterlee New Town Development Corporation.

This part-time job involved attracting investors into this area in the North-East, and was hardly glamorous. But it was the first of many such appointments where he bridged the divide between commerce and government, the private and public sectors.

Still going strong: Stevenson is thought to be a close ally of former British PM Tony Blair - has that helped him through?

These included chairmanship of the National Association of Youth Clubs (where he met his great friend, Peter Mandelson) and being asked by Ted Heath, then Prime Minister, to head a study into pop festivals.

After faring less well during the Thatcher years (she’s said to have preferred another candidate to be chairman of the trustees of the Tate Gallery), he spent the Eighties building his reputation in the City — as well as raising four sons with his wife Charlotte, the daughter of a former Lord Mayor of London.

Home life was split between a Grade II-listed 16th Century farmhouse in Suffolk and a beautiful four-storey Georgian townhouse a few streets from Buckingham Palace.

And so with the dawning of the next decade Stevenson was perfectly placed to attach himself to New Labour’s coat-tails in the period before Blair became Prime Minister.

In 1990, his friendship with Mandelson was cemented when the Labour spin-doctor got a £28,000-a-year post with his management consultancy. It filled a gap between being Labour’s director of communications and his election as Hartlepool’s MP in 1992.

At the time, Stevenson praised Mandelson, saying: ‘He is a superb strategist and marketing person. We are employing him for his brainpower, not his political preferences.’

Having been appointed by Blair to head an inquiry into information technology in schools, he was knighted in 1997 then, two years later, was made a life peer, assuming the title Lord Stevenson of Coddenham.

Helping hand: Lloyds TSB was forced into action after major errors saw HBOS drift into catastrophe

By then he was chairman of the Financial Times group Pearson and of Halifax bank. He went on to become chairman of HBOS when Halifax and Bank of Scotland combined.

Directorships included the pensions and financial advice group St James’s Place Capital, BSkyB, and the merchant bank Lazards.

And in 2000 he was entrusted with the task of selecting Labour’s first ‘people’s peers’. However, this much-fanfared egalitarian step backfired spectacularly when Stevenson caused outrage by announcing that no ordinary people (such as hairdressers) had been chosen from the 3,200 applicants because his committee was not ‘confident that they would feel comfortable’ in the exalted company of men such as himself.

He pompously explained: ‘Before we were to nominate someone from that kind of background, with an outstanding achievement in his or her chosen way of life, we would have to be very, very confident that they would feel comfortable standing up in debates and talking and cutting it.’ Instead, seven of the 15 picked already had knighthoods, while three others were professors.

One of those chosen in 2005 was Michael Hastings (Lord Hastings of Scarisbrick) a director at City accountants KPMG and a Review Group Member of the Media Standards Trust. The trust is a lobby group which presented a huge amount of evidence to the Leveson inquiry into Press ethics, and which set up, and in large part funded Hacked Off, the virulently anti-popular-press campaign group fronted by Hugh Grant.

Members of the parliamentary commission
into banking standards were particularly ired by Lord Stevenson’s
attempts to distance himself from the HBOS disaster

Stevenson’s pivotal position at the centre of the self-regarding liberal establishment was reinforced when he was appointed as chair of the Arts and Media Honours Committee, one of the most influential positions in the arts world.

The committee decides which arts and media figures are awarded knighthoods, damehoods, OBEs and so forth. Among those who got a knighthood under his stewardship was Peter Bazalgette, arch-luvvie and promoter of Channel 4’s Big Brother, a show seen by many as the ultimate symbol of ‘dumbed down’ TV. Inevitably, another linked to Stevenson is uber-networker Sir David Bell, a director and chairman of the Financial Times as well as being a Cambridge University contemporary.

Bell has recently been one of the panel of assessors advising Lord Leveson. His inclusion as one of the six ‘experts’ was highly controversial because he is the founder of The Media Standards Trust.

A now-removed page from the Trust’s website dating back to 2009 names a ‘Dennis Stevenson’ among a list of its funders, but it is not clear whether this was the banking peer.

The popular press has, of course, led public criticism of banks such as HBOS and shone a light on the financial world’s activities that many within it have found uncomfortable.

Members of the parliamentary commission into banking standards were particularly ired by Lord Stevenson’s attempts to distance himself from the HBOS disaster.

He insisted that any reckless lending was not his fault because he was ‘only there part-time’.‘There was a lot of mistaken lending. I wasn’t there in the trenches with the people making the decisions — I was only there at the most part-time,’ he said.

Undercover: Does Lord Stevenson's continued prominence in the financial area say it all about the state of British banking

He then conceded that the bank’s top brass ‘missed a trick’ in its corporate lending division — meaning that there was inadequate supervision of its loans to big firms, especially to property giants.This infuriated Andrew Tyrie, chairman of the commission, who pointed out that £26 billion — roughly two-thirds of the amount businesses pay in corporation tax each year — had ‘gone down the Swanee’.

The Tory MP added: ‘Millions have lost out on what they thought they’d get for their pensions. ‘Almost three million shareholders have almost been wiped out — and taxpayers are going to be paying for this for a very long time.’ Mr Tyrie then produced a letter Stevenson wrote to the Financial Services Authority (FSA) in January 2008, a few months before HBOS was swallowed up by Lloyds.

In it, Stevenson spelt out exactly what he considered his role at the bank to be. ‘I can understand a mindset which regards a ‘non-executive chairman’ as sailing above the battle, not concerned with the detailed day-to-day realities,’ he wrote.

‘Can I make it plain that I do not regard myself as that kind of chairman. Yes, I am part-time (but not non-executive). I am legally responsible for the business and with the modesty for which I am not famous regard myself as being knowledgeable and well briefed.’

In a later letter, addressed to Sir Callum McCarthy, chair of the FSA, Stevenson played down any risks at HBOS. The language and tone employed speaks for itself.

It begins: ‘You kindly rang yesterday morning to ask ‘how was I feeling?’ . . . making it plain you were asking corporately not personally!

‘The straight answer to your question is that I and we are feeling about as robust as it is possible to feel in a worrying environment which we would rather did not exist!

‘My soberly considered view is that given the extraordinary external environment, HBOS in an admittedly uncertain and worrying world is in as secure a position as it could be. Happy to be questioned on this but I hope you know me well enough to know this is neither a bravura nor an ill-considered statement.’ Asked to explain further, Stevenson insisted his biggest mistake was failing to anticipate the credit crunch, when banks were starved of funds because they had become nervous about lending to each other.

But Lord Lawson, chancellor to Margaret Thatcher and father of Nigella, said: ‘You are living in cloud cuckoo land. You were responsible for a strategy of reckless growth and that is what led you into difficulties.’

Stevenson’s lack of contrition angered Justin Welby, the Archbishop of Canterbury-elect. He said he was ‘baffled’ by Stevenson’s inability to recognise the ‘complete failure of culture and strategy’ which ‘led to a bank being wiped out’.

Referring to his insistence on blaming the credit crunch for the collapse of HBOS, the church leader said: ‘It is like someone who has a fatal heart attack at home and is in a car crash on the way to hospital. And the car crash is then blamed as the cause of death.’

Stevenson responded: ‘We were not aware until late in 2008 that we were suffering from a heart attack.’

Only at the end of his lengthy testimony did he apologise, saying: ‘I am extremely sorry it happened. ‘I am extremely sorry that employees got hit, taxpayers got hit and shareholders got hit. There are few days when I don’t think about this.’

Quite what is next for Lord Stevenson is unclear. But perhaps he would do well to be reminded of what he has said is his favourite saying: ‘Nemesis follows hubris’.

For the benefit of those unfamiliar with Greek mythology — or less intelligent than Stevenson (a self-confessed ‘intellectual snob’, remember) it means arrogance or over-confidence will be punished by inexorable divine retribution.

Pride coming before a fall. Or, to give a real-life example: a lord can end up a lavatory cleaner.